Masonry Magazine June 1986 Page. 21
theWASHINGTONire...
THE LATEST BUSINESS INDICATORS have proven somewhat disappointing to the economists at government agencies as well as many in the private sector. Number after number has come in lower... weaker..... than was expected earlier. And more of the same seems likely for a little while longer, at any rate. Officials still believe that economic activity will speed up again later on. Positive forces now in place will make their impact felt in the second half. The lift is coming... but it will appear later than originally anticipated.
There may be some further steps to stimulate with easier money, though, if the picture does not get brighter soon. There would be an inclination to stay on the safe side.
SIGNS OF A SOFTER ECONOMY have been quite numerous so far this year. They add up to a pattern that has made a large number of analysts nervous, and experts wonder whether it will soon be time to rethink their forecasts.
GROWTH IN THE FIRST QUARTER looked stronger statistically than it was in the view of many economists in Washington and in the business sector. For one thing, the lower oil prices made the trade deficit appear brighter. Even so, the rate of expansion during the second quarter won't be as good. Net, first-half performance a gain of less than 2%-will be disappointing.
FAITH IN A BRISK REBOUND is still strong, if not entirely unshaken, despite the relentless parade of sluggish indicators that keeps coming in. Most analysts at Federal agencies think they see what will speed the pace. They are the same spurs that have been stressed for a number of months now. Sharply lower fuel costs will leave more of income free for other spending. Lower interest rates will make buying of homes and big-ticket items easier. And the cheaper dollar is starting to make American goods more competitive. Such factors have proven to be tried-and-true stimulants in earlier cycles, though predicting the timing of their impact is far from an exact science.
Many analysts in business and government still look for a 4% to 5% rate of expansion during the next two quarters, with the good times conceivably carrying over into 1987.
BUT ECONOMISTS ARE NOT AS CONFIDENT as they were about a month ago. They are braced for another string of less than vigorous business figures in the four or five weeks to come. They have already noted that consumer incomes have not been increasing as rapidly as forecasters were expecting. What's more, the burden of the consumer's debt is already quite high. As a result, there's a danger personal spending and retail sales-will lag.
So, reluctantly, analysts are considering the possibility that their bright forecasts could turn out to be wrong-could end up missing the mark by proving too optimistic.
SO, NEW ACTION TO EASE MONEY and lower interest rates still remains a possibility-perhaps another discount-rate cut or some equivalent steps. The Federal Reserve, though, wants to wait and see for a little bit longer before officials consider another monetary shift to spur business activity. There are several reasons why they'll move cautiously, at least for a time.
FOR NOW, THE FED IS ON HOLD. Most of the rate drop is over, especially since prices of crude oil have little further room to move lower. (One could reasonably speculate they are as likely to edge up now as down.) But the Fed won't shrink from doing something more, if business stays slow. Even then, officials say any new bond and mortgage rate dips will be modest. They will be measured in fractions, rather than in full percentage points.
THE STOCK MARKET will not be repeating those 50-point-a-week surges that lifted the averages to so many new highs. It has been taking its cue from interest rates and oil in recent quarters and will continue to do so. From here on, periods of consolidation will be alternating with any rallies. Net, the market could very well end the year at higher levels than today's. But it will not be up a few hundred points more, as recent trends suggest.
RONALD REAGAN'S free-market philosophy is gaining adherents around the world, even where bureaucracy's grip has been tight. The rising spirit parallels conservative political trends. France's new regime has begun to denationalize firms the Socialists took over. Germany, Holland, and Brazil are also freeing their economies... to encourage creativity and innovation.
These countries will become even tougher competitors for America in the years ahead, as the new policies mature.
PRESSURES FOR TAX INCREASES are likely to diminish-even disappear in months ahead, in part because of the oil-price and interest-rate slides. Together they will be saving the Federal government many billions this year, far more than enough to offset any drop in revenue from the weak first half. Congress will still have the thankless job of cutting many popular programs, but the total it must reach to comply with Gramm-Rudman is now much smaller.
Ronald Reagan kept saying that he still opposed new taxes, but many felt that he would come around when the chips are down. Now, the chance of a switch seems even more remote.